Financial Advisor IQ - Content Page

August 31, 2021

Advisors have been making it a priority to connect with their clients’ children to avoid getting fired by them when they inherit their parents’ wealth.

More than 70% of heirs are likely to fire or change advisors after receiving their inheritance, according to research firm Cerulli Associates.

Among the advisors’ strategies to keep those inherited assets in-house are discussing a checklist of key wealth transfer-related documents, broaching topics such as recent changes to retirement rules and treating their clients’ children as clients from the start.

Key documents

Karl Wagner III, a partner and senior wealth advisor at registered investment advisor firm Biondo Investment Advisors, does not mince words when describing the importance of connecting with the next generation.

“Whoever is in my business who’s not thinking about this is going to be in a lot of trouble down the road,” he said.

Wagner’s first step is to ask clients if they have the important documents in place, including wills, powers of attorney, beneficiary forms and medical proxies.

Asking about that is “a really good way for us to bridge that conversation … not so much about investing but more about holistic estate planning,” he said.

Wagner’s next step is to ask clients for an introduction to their children “so we can see how we can possibly help them also.”

Biondo, which has more than $800 million in client assets, has offices in Milford, Pennsylvania and Sparta, New Jersey. Before the Covid-19 pandemic, the firm held biannual educational events for clients and their children that covered three main topics: behavioral finance, estate planning and market commentary, according to Wagner.

Wagner estimates his efforts have helped keep the children’s inherited wealth in-house “eight times out of 10.”

Secure Act

For Jeff Winn, managing partner at Orlando, Florida-based RIA firm International Assets Advisory, discussing the Secure Act — or the Setting Every Community Up for Retirement Enhancement Act — is a good starting point.

Among its provisions, the Secure Act raised the required minimum distribution age for retirement plans, such as individual retirement accounts, from 70 1/2 to 72. It also eliminated the so-called stretch IRA, which allowed non-spouse beneficiaries to extend an inherited IRA’s tax benefits over the course of a lifetime. Most non-spouse beneficiaries must now withdraw all assets from an inherited IRA within 10 years of the owner’s death.

“The gift that was given to advisors was this aspect of the stretch IRA basically being put to death by the Secure Act,” Winn said, noting his firm helps clients re-stretch their IRAs. The firm has $4 billion in client assets.

“We can talk about a strategy where maybe we buy life insurance, something to replace the asset for the kids,” he added. “It’s not so much that the next conversation is with the kids as it is having a solution in mind for how to maximize the dollars and then present it to the kids.”

For example, the firm identified for one client a portion of the RMD that the client didn’t need, Winn said, noting not everyone needs the entire amount. After confirming that the client was in good health, the firm bought for the client life insurance — which is tax free and the benefits of which would go to the children — and serves as a replacement for the IRA that was “minimized” by the government, according to Winn.

“These kids went from just getting a taxable asset that they were going to have to take in 10 years to completely tax-free and larger. We’re not going to lose those clients,” Winn said.

Winn said it “is too soon to say” how this approach is impacting the firm’s client retention.

Children are clients from the start

Matt Liebman, a founding partner, chief executive officer and wealth advisor at RIA firm Amplius Wealth Advisors, said that his firm strives to work with families from the start.

“We work with the children as clients for their own financial situations, independent of any potential inheritance, while the parents are living,” he said. “As much as possible, we try to have multigenerational clients so that any sort of asset transition at death is fairly smooth and we’re involved in every step of the way.”

Amplius, which is based in Blue Bell, Pennsylvania and has more than $1 billion in client assets, is itself multi-generational. Matt Liebman’s father, Samuel Liebman, is a founding partner, chairman and a wealth advisor at the firm. The younger Liebman believes this to be an advantage.

“We are a multigenerational, family team. For a number of our clients, it’s an easy connection to see and make. It’s ‘this father and son are working together [scenario], so perhaps I should introduce my daughter or my son, my mother or my father.’”

Liebman adds that it has also become more common for younger clients to introduce their parents to the firm.

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